A friend of mine recently went through a bitter divorce from his second wife. Shortly after the divorce, he died but did not change his will. His will left everything to his now ex-wife. His children from his first marriage tell me they will inherit his assets, even though he did not change the will, because Florida has a law that automatically changes a will when someone gets divorced. But, they tell me they will not get his IRA, life insurance, or other accounts on which he listed his ex-wife as death beneficiary but did not change when they got divorced. How can that be?
While someone is in the midst of emotional turmoil associated with a divorce, he or she often fails to consider the need to rewrite their will and make changes on accounts and insurances so that their soon to be ex-spouse does not remain beneficiary. By statute, once divorce is final, any provision of a will or revocable trust executed while married that directs distribution to the former spouse becomes void and the former spouse is treated as if he or she died at the time of the divorce (this can be changed by specific language in the will, trust, or final judgment of divorce). However, while parties remain married, the dispositive provisions to a divorcing spouse remain effective. That means it could be important to change ones will and/or trust before the divorce is final. Although the statute will "fix" a will or trust when the divorce is final, some divorce cases can take years and a death during the divorce leaves the will and trust unchanged.
Perhaps more importantly, the statutes only address dispositive provisions in wills and trusts. That leaves a lot of ex-spouse designations needing change, even after divorce. Some of those designations include the following:
- Health care decision making authority. Spouses often designate each other to make health care decisions in the event of incapacity. That authority is not revoked by divorce.
- Power of Attorney. It is not uncommon for spouses to give each other power of attorney with respect to financial matters. Those powers usually grant the attorney in fact access to bank accounts, brokerage accounts, and authority to deal with other assets. Divorce does not terminate that authority, unless the power of attorney specifically recognizes divorce as a terminating event.
- Bank and brokerage accounts held as joint tenants with right of survivorship will pass to the survivor, even after divorce. Florida real estate owned as husband and wife creates a survivorship estate by the entirety, is "fixed" by divorce by severing the survivorship aspect. That means, the half owned by each spouse is part of that spouse's estate and does not pass to the surviving ex-spouse. The same is not true of bank and brokerage accounts. Retirement accounts and insurance policies will generally pass to the beneficiary designated on the account or policy. Under current Florida law, divorce does not change that.
Even if the divorced person changes his or her will and trust to eliminate a former spouse there are a lot of assets that might still need to be addressed and power over assets and even medical care that probably should be changed.
Florida's legislature in 2012 addressed some of these problems. The legislature adopted new Section 732.703 of Florida Statutes, effective July 1, 2012, to address transfer of assets on death that would not pass through a divorced person's will or trust.
The new statute terminates an ex-spouse as a beneficiary on a wide variety of financial accounts payable upon death of the owner to the beneficiary designated on the account or asset. For these assets, the statute treats the ex-spouse as having died at time of divorce. The statute applies to life insurance, employee benefit plans, individual retirement accounts and securities owned by a person who is a resident of Florida at time of his or her death when the ex-spouse was named as the death payee prior to dissolution of marriage.
Although the statute fixes what might be left undone through oversight after divorce, it is not a complete solution. The statute does not apply to the following important exceptions:
- Assets held in two or more names when death of an owner vests ownership of the assets in the surviving co-owner or co-owners. This can be real property and even financial accounts where the financial account is set up as joint tenants with right of survivorship as opposed to ownership by one person payable on death to another. In most marriages, accounts are joint with survivorship rather than payable on death.
- If the instrument directing disposition of the asset at death is governed by the laws of a state other than Florida, the statute does not apply. This may be a big exception for people moving to Florida after divorce.
- To the extent that controlling federal law provides otherwise.
- Florida administered retirement plans under the Florida retirement system.
The statute recognizes that it implicitly makes asset administrators liable for wrongful payment, by providing that payors are not liable for payment under a variety of circumstances, including where the governing instrument does not specifically specify the relationship of the beneficiary to the decedent or where a death certificate is silent as to the decedent's marital status.
The new statute leaves a lot of assets and accounts untouched. It also does not change who gets what if one spouse dies in the middle of a heated divorce case. The statute is a band aid offering limited protection to the unthinking and unadvised. It underscores the importance of good legal advice in addressing estate planning issues both during and after a divorce. In this area, good legal advice is critical.